In search of sustainable, low-carbon growth

While governments dither on sustainability, businesses increasingly see SRI as value-driven. But, HSBC’s Nick Robins tells Mike Scott, investment is being hampered by the harsh world economic climate

HSBC has one of the most visible symbols in finance of a commitment to embed climate change into its business practice: the Climate Change Centre of Excellence.

The centre was established in 2007 in response to the realisation that “climate change was moving rapidly from being a corporate responsibility issue to an issue of business strategy”, explains its founding director Nick Robins.

This change in attitude came on top of a broader reassessment of financial markets, prompted by the dotcom crash at the turn of the century, which showed they did not cater for long-term performance. At the same time, “SRI started to evolve into broader responsible investment and there was a realisation that it was moving from values-driven to value-driven”.

The centre investigates the likely economic risks and opportunities of climate change for the financial markets. “The idea was to enable HSBC and its clients to understand that transition, and to have a focal point within the bank to work with our regular analysts and the investment side,” he adds.

Alongside the centre, the bank also has a climate business council, chaired by the chief executive, to identify the business opportunities arising out of global climate change. One product is the HSBC Global Climate Change Benchmark Index, also launched in 2007, which includes companies generating revenues from climate change solutions.

The centre’s name might suggest that it does not consider broader issues of sustainability, but this is not the case, Robins says. “We have been looking at how climate change integrates with other issues such as food, water, raw materials and energy. Sustainability is moving back up the agenda and it captures a broader package of issues,” adding that climate change provides “a good door into these wider, complex issues”.

However, there has also been a broader shift in the emphasis of the unit’s work since the Copenhagen climate conference in 2009. “Pre-Copenhagen, the assumption was that industrialised countries would drive policy, that the science was sufficient incentive for governments to take action and that the carbon markets would be enough to solve the problem.None of those assumptions necessarily hold now. We believe there is a risk that industrialised countries such as the US are getting locked into high carbon economic models,” Robins says.

“Our focus has shifted regionally to the emerging markets now leading in this field. We are looking more at what is happening in China, South Korea and India, and it reaffirms our view that many of the core solutions to climate change will come out of emerging markets.”

As for future investment, he says there is “a lot of talk about low-carbon growth, but policy risk remains high”, and that we seem to be a time of contradictions: while our technological ability to make the transition is getting ever more powerful – for example, as solar costs plunge – “the backdrop of economic permafrost makes raising capital a hard task”.

He concludes: “This calls for a targetted approach on themes and assets that can deliver for the long term.”